The deadline to file your federal tax return is quickly approaching. If you’re like most people, tax season fills you with dread. Often, people feel stressed by preparing their taxes because they’re overwhelmed and don’t fully understand the rules.
Part of the problem is how pervasive misinformation around taxes is. There are myths that continue to exist, leaving people convinced of their accuracy. Unfortunately, believing these myths and filing your return with those misconceptions in mind can lead to significant issues.
To help you file your taxes accurately, let’s debunk the five most common tax myths.
1. You don’t have to report side gig income under $600
Earning money on the side is increasingly popular. According to a recent survey 45 percent of Americans report having a side hustle on top of their regular jobs. With so many people freelancing, there’s bound to be issues reporting their income.
A common misconception is that you don’t have to report income if you receive less than $600. So where did this myth come from?
If a company pays you at least $600 per year, they have to file Form 1099-MISC detailing what they paid you. If they paid you less than that, they don’t have to file a 1099.
Because a 1099 isn’t required, many people assume they don’t have to report that income. Unfortunately, that’s not true. Any income you earned — even if it’s just $100 — has to be reported on your tax return.
2. Claiming the home office tax deduction will always trigger an audit
If you use part of your home for business, you can deduct up to $1,500 from your taxes with the home office tax deduction. However, many people who are eligible for this deduction don’t claim it because they worry it will automatically trigger a tax audit.
However, tax experts say that concern isn’t accurate. If you qualify for it, you should absolutely claim the deduction to reduce your taxable income.
To be eligible for the home office tax deduction, you need to use the space exclusively and regularly for business use, and it should be the principal place of business.
3. College students don’t have to pay taxes
When you’re in college, you’re not making a ton of money. Being short on funds, you may think that you don’t have to file a tax return. However, not filing your return on-time can get you into trouble.
If you earned income during the past year, even if it’s from a part-time job during the school semester, you probably have to file a return. Students who are dependent on their parents must file a return in the
- You had unearned income — such as interest, dividends, or capital gains — exceeding $1,100
- Your earned income — including wages, professional fees, or a salary from an employer — was over $12,200
- Your gross income was the larger of $1,100 or your earned income (up to $11,850) plus $350
4. Your accountant is liable for any mistakes on your tax return
Hiring an accountant rather than doing your own taxes can be a wise decision. A professional is more likely to know the latest changes to the tax code and can prepare your return accurately. However, even professionals make mistakes. You may believe that your accountant is liable for any mistakes that exist on your tax return. However, the IRS doesn’t see it that way.
Because it’s your personal tax return, you’re personally responsible for the information included on your return. If there are errors, you’re liable for any fees or penalties — not your accountant.
5. If you are low-income, you won’t be audited
If you don’t make much money, you would think that you’re less likely to get audited than a millionaire. However, the opposite is true: low-income individuals are typically audited at a higher rate than wealthy people.
In 2017, the IRS audited 381,000 recipients of the Earned Income Tax Credit (EITC) — a tax credit that benefits low-income people. That number was 36 percent of all audits performed that year, showing just how common it is.
That doesn’t mean you shouldn’t claim the EITC. However, you should take extra pains to make sure your tax return is accurate and complete.
Filing your tax return
Now that we’ve thoroughly debunked some of the biggest tax preparation myths, you can move forward with filing your own tax return. If you need help navigating through the process, consider using an online tax service using an online tax service to help you. You’ll get comprehensive support and guidance, and these services can help you get the maximum tax refund you deserve.
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